Page 380 - Bank-Muamalat_Annual-Report-2023

BANK MUAMALAT MALAYSIA BERHAD

BASEL II
PILLAR 3 DISCLOSURE

2.0 CAPITAL MANAGEMENT
Bank Muamalat’s capital management framework was designed to protect the interests of its key stakeholders and
maximise shareholder value through optimum use of its capital resources. The primary capital management objective is to
ensure efficient capital utilisation while in pursuit of strategic and business objectives. It is also aimed at ensuring sufficient
level of capital is maintained at all times to support the business growth targets while keeping it in line with the Bank’s
risk appetite as well as asregulatory requirements.
To determine the appropriate level and composition of capital to be held, the Bank uses the risk and capital adequacy
assessment approaches as outlined under the Internal Capital Adequacy Assessment Process (“ICAAP”). The capital levels
are assessed based on the Bank’s strategic and business targets, taking into account current and forecasted economic
and market conditions as well as the regulatory capital standards.

The Bank prepares its strategic, business and capital plans on an annual basis. Guided by the Board- approved risk
appetite statement, the plans cover a minimum of three-year planning horizon and these are subjected to a stress
test covering several possible stressed scenarios. Based on the ICAAP and stress test analysis, internal capital targets are
set for key capital ratios to facilitate capital management and monitoring.
Arising from the strategic planning and capital assessment process, an annual capital plan is drawn up to ensure that
sufficient capital is held to meet business growth targets as well as to maintain adequate buffer under foreseeable
adverse economic scenarios. The capital plan also addresses any capital issuance requirements,optimal capital
instrument composition and maturity profile, and capital contingency planning.

2.1 INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (“ICAAP”)
Bank Muamalat’s approach towards assessing the adequacy of its internal capital levels in relation to its risk profile is
addressed in the Internal Capital Adequacy Assessment Process (“ICAAP”). This is in line with BNM’s requirement
as stipulated under the guideline, “Capital Adequacy Framework for Islamic Banks (“CAFIB”) - Internal Capital Adequacy
Assessment Process (“Pillar 2”)”.
The ICAAP covers an assessment of all risk exposures, particularly on those deemed as material risks, and the
effectiveness of related risk controls and mitigations. The risk and capital assessment also looks at the adequacy of
capital in relation to other discretionary and non-discretionary risk and where required, additional capital and buffers are
allocated for risk exposures that are deemed inadequately covered under the Pillar 1 capital.
The ICAAP further addresses the current and future capital levels to be considered or maintained to ensure its
adequacy to support the Bank’s business operations on a going-concern basis. In terms of its capital mix, the Bank’s
capital consists primarily of Tier 1 capital and common equity, which enhances the Bank’s ability to absorb potential
losses under unforeseeable circumstances.

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